Assessing the degree of financial integration in ASEAN—A perspective of banking competitiveness

This paper assesses the degree of financial integration of the ASEAN economies by investigating the evolution and convergence properties of banking market competitiveness over the period 1994–2016. Banking market competitiveness is modelled by the Panzar-Rosse (PR) reduced-form revenue model, and the estimated measures of competitiveness (H-statistics) are then used to test for β- and σ-convergence. Greater financial integration is not necessarily competition enhancing, however we find evidence of convergence toward a monopolistic competitive market structure across countries. We find that competitiveness weakened and the speed of convergence slowed following the Asian Financial Crisis and the Global Financial Crisis, but in general the policy of financial integration has been moderately successful.